On the Brink of a Revolution in Social Entrepreneurship

Helen Stephenson
Director for the Office for Civil Society in the Cabinet Office, and co-director of the UK Government Innovation Group

You don't often hear civil servants talking about revolution, but Sir Ronnie Cohen's comments last week that this country is on the brink of a revolution in social entrepreneurship rang true to me - he was not being far-fetched.

Social enterprise - sustainable businesses that exist for more than simply profit - is not a new concept, but their recent growth is. There are now 180,000 social enterprises in the UK and sector contributes at least £55bn to the economy.

The sector is hugely important to the Government because not only does it create jobs and growth but many are set up in disadvantaged areas and help us to tackle difficult issues such as youth unemployment, community regeneration and services for the elderly.

Take Blue Sky Development & Regeneration - a national social enterprise which delivers ground maintenance and recycling contracts - as an example. The organisation solely employs people who have recently come out of prison.

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Blue Sky has secured a social investment and business support package worth £825k (2010-14) from Impetus Trust with support from Deutsche Bank.

As a result, Blue Sky employed 650 ex-offenders since it was established in 2005, which is equivalent to the entire inmate population of a medium-sized prison.

Of these, less than 15% have re-offended, which is a quarter of the national average. Given that one prison place costs approximately £41,000 per year, the organisation is saving millions of pounds for the public purse.

In addition, half (49%) of Blue Sky's employees have gone onto further employment - in all a pretty potent example of how social enterprises can play a key role in tacking vital issues.

And the market is growing.

Social enterprises are outperforming just-for-profit businesses and a growing proportion of start-ups are socially-driven.

So what is Government's role in helping this sector to achieve scale? This week the social investment tax relief comes into force. It is a world first and will help to get more investors injecting vital cash into these social enterprises and charities.

We have known for some time that one constraint facing the social economy is who will provide the finance for the market to continue to grow and so we've developed this tax relief to reduce the risk of investing and to make social investment even more appealing and accessible.

With around 40% of social businesses citing capital access as the single largest barrier to their growth and sustainability, comparing to only 7% of SMEs - we hope that this relief, which could potentially generate close to half a billion pounds of investment over five years will drive that percentage down significantly.

So how does it work?

• The tax relief will be available to individuals who invest in qualifying social organisations. 30% of that investment will then be given back to the investor as a reduction in their income tax bill for that year.

• The 30% rate is the same rate as the Enterprise Investment Scheme and Venture Capital Trust investments, and will attract the same capital gains tax reliefs, creating a level playing field for social investment.

• Unlike the other venture capital tax reliefs, the social investment tax relief will be available for debt as well as equity investments.

• Eligible organisations will be able to receive up to €344,827 (around £290,000) over three years in tax-advantaged investment. This amount is in Euros to maximise the level of investment organisations can receive without infringing EU rules.

This week we have also published a full guidance on how to use the relief which you can find here

While our ultimate ambition is to increase the reach and impact of social enterprises in the UK, we also hope that by taking a global lead on this we will encourage other governments to introduce similar schemes.